On October 2, 2024, the Central Bank of Nigeria (CBN) announced that it would introduce what it called the Electronic Foreign Exchange Matching System (EFEMS) as part of the recovery measures for Nigeria’s currency amid the Naira’s massive depreciation against its pairs in the foreign exchange market.
The platform was tested for two weeks in November to ensure it runs smoothly before the launch date which was set as December 1, 20204.
Here is a series of frequently asked questions that Nigeria’s apex bank released to explain how the new FX system works:
What is EFEMS?
EFEMS is a digital fx platform introduced by the CBN, which means Electronic Foreign Exchange Matching System (EFEMS), where foreign currency buyers and sellers are automatically matched for a faster FX trade. It also promotes transparency and is better regulated by the apex bank.
When did EFEMS platform took off?
After the test run in November 2024 EFEMS platforms officially commenced operation on December 1, 2024.
What benefits will Electronic Foreign Exchange Matching System have on the Naira and Nigeria?
1) It automates the matching of orders.
2) It ensures that market participants transact at the best available prices, thereby reducing price manipulation.
3) The platform is designed to reduce market distortions to the barest minimum.
4) It provides real-time pricing and visibility of buy/sell orders, reducing the opacity in the FX market.
5) It limits speculative trading and reduces the volatility caused by
market distortions.
6) It allows the CBN to effectively play its oversight role, allowing the apex bank to regulate and monitor the FX market activities.
7) It allows the general public to have access to real-time data .
How does it work?
The EFEMS is a platform where authorised dealers place buy and sell orders in real time. The system will then automatically match corresponding orders based on predetermined rules, ensuring swift execution of transactions.
The transaction doesn’t stop there, but it will reflect immediately in the system for fx market participants and the CBN (regulator).
What does EFEMS bring to the table?
EFEMS is an electronic system, replaces the old manual trading process. All transactions are real-time through a single regulated platform.
How will EFEMS impact the market rates?
It will reflect actual market conditions, leading to a more efficient and stable pricing mechanism in the Nigerian FX market.
Will EFEMS promote effective transparency in the FX market?
Yes, the Electronic Foreign Exchange Matching System will promote transparency and reduce speculative activities thereby reducing exploitation by some participants.
Who regulates FX activities in the EFEMS regime?
The Financial Markets Dealers Association (FMDA) will work with the CBN to regulate and oversee the activities in the EFEMS. The regulators will ensure that participants comply with the Nigerian FX Code and the revised Market Operating Guidelines for the Nigeria Foreign Exchange Market.
How can Authorized Dealers use EFEMS?
Dealers must understand the Nigerian FX code, register by doing all necessary documentation, they must be trained and abide by the system integration.
Of what benefit will the new FX system be to the general public?
The public will have access to real-time market prices and data, thereby helping them to make informed decision in their investments and businesses.
Will EFEMS help eliminate speculation?
EFEMS will help reflect actual demand and supply conditions, thereby reducing speculative activities, and reflecting the actual actual demand and supply of FX.
Will EFEMS operate alongside interbank FX?
The previous platform (Refinitiv FXT) for interbank FX trades are now gone as it is replaced with EFEMS. However, Refinitiv FXT may still be used for informal or conversational deals.
What is scope of trade on the EFEMS?
EFEMS is expected to cover all FX transactions including interbank and trades with clients.
Will there be a minimum threshold in terms of notional trades?
The FMDA and the CBN will work together to set the appropriate threshold and
guidelines.
How will EFEMS help in price discovery?
The platform will show real-time buy and sell orders, EFEMS provides a clear view of market demand and supply, leading to accurate and fair exchange rates.
How will bilateral deals work under EFEMS framework?
All FX transactions, including bilateral deals and clients’ trades will still be conducted through EFEMS to promote market-driven pricing. If there is any exceptions, it will be outlined in the system’s operating guidelines.
What’s the role of banks in EFEMS?
All financial institutions with FX certificate must conduct all FX trades via EFEMS.
Where will the general public get the real-time rates?
The real-time rates and other key data from EFEMS will be published CBN official websites and other financial information services, which would serve as reference rates for USD/NGN and the methodology for computing and updating these rates will be communicated to market participants.